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Report: Capital Spending Highest Since 1994
A recent report from the National Association of State Budget Officers showed that while total state spending rose 7.3% overall in fiscal year 2022, infrastructure construction spending increased 15.3%, thanks to funding from the bipartisan infrastructure law.
According to NASBO, this percentage is the highest annual figure since 1994, and is only expected to grow over the next several years because of the funds from the Infrastructure Investment and Jobs Act, as well as the American Rescue Plan Act.
Report Summary
The annual report outlines that capital expenditures are made for new construction, infrastructure, major repairs and improvements, land purchases and the acquisition of major equipment and existing structures. Minor repairs and routine maintenance are also reported as operating expenses.
In this category, capital spending has increased the past three fiscal years in 2020, 2021 and 2022 at 4.3%, 3.6% and 15.3%, respectively. The latest figure is reportedly the highest growth rate since 1994, largely due to federal government funding.
Under the ARPA, states and localities are permitted to use federal funding for investments in infrastructure, including water, sewer and broadband services. The IIJA includes approximately $550 billion in new spending for roads, bridges, rail, transit, the electric grid, water systems and broadband.
State spending on capital, including general funds, other state funds and bonds, increased 16.8%, or $15.3 billion, during the fiscal year, while federal funds grew 11%, or $3.6 billion. NASBO attributes the state growth on capital partly to one-time spending on infrastructure projects resulting from revenue surpluses in fiscal 2021 and fiscal 2022.
In this category, the vast majority of federal funds were reportedly spent for capital purposes on transportation at 91.7% in fiscal 2022.
Specifically looking at transportation, which is the largest category of state capital expenditures, this category comprises 65.4% ($93.4 billion) of all capital expenditures in fiscal 2022. This was an increase of 18.7% from the previous year and rose 54.1% from fiscal 2009.
The amount of reported capital spending would be larger, however, but a dozen states treat capital spending on the construction and maintenance of roads, bridges and mass transit differently than other capital spending, NASBO reported.
For these figures, transportation expenditures totaled $208.7 billion in estimated fiscal 2022, 7.3% of total state spending and an increase of 19.5% over the previous year. State governments contributed 73.3% of transportation expenditures in fiscal 2022, while federal dollars accounted for 26.7%.
“The amount and structure of federal transportation funding to states have seen several recent changes brought on both by the pandemic and the passage of a bipartisan infrastructure bill. Since the pandemic began, states have received limited federal COVID-19 aid that has been eligible to use for transportation purposes, including $10 billion in emergency funding for state transportation departments from a December 2020 relief measure,” wrote NASBO.
“In addition, the American Rescue Plan Act (ARPA) permitted states to use federal funding for specified infrastructure projects. Based on figures from forty-one states, states estimated they expended $935 million in federal COVID-19 aid for transportation in fiscal 2020, $2.6 billion in fiscal 2021, and $4.8 billion in fiscal 2022.”
The report noted that while the IIJA provides a significant increase in highway funding, the bill also includes: $351 billion for highways from the Highway Trust Fund and the General Fund; $91 billion for transit; $12 billion for highway safety; $66 billion for passenger rail; a new $27.5 billion formula-based bridge program; and a new $5 billion electric vehicle charging infrastructure formula program.
The full report can be read here.
Recent Infrastructure Investments, Cost Concerns
This month marked the one-year anniversary for the passing and signing of the $1.2 trillion IIJA, which is touted as the largest infusion of federal investment into infrastructure projects in more than a decade.
Recently, the U.S. Department of Transportation has announced the first round of grants from the law’s competitive Bridge Investment Program and the Federal Highway Administration has released nearly $60 billion in funding for 12 formula programs under the law, in addition to awarding more than $2.2 billion for RAISE program transportation projects and $1.5 billion for the INFRA competitive grant program.
The American Society of Civil Engineers also released a new virtual map this month in partnership with Accelerator for America, featuring projects getting underway thanks to funding from the bipartisan infrastructure law for its one-year anniversary.
According to ASCE, communities in all 50 states are seeing the benefits of the bipartisan infrastructure law, as funds go towards fixing potholes, rehabilitating bridges, replacing lead pipes and cleaning up the environment.
The bipartisan infrastructure law reportedly invests in all 17 of the infrastructure categories included in ASCE’s 2021 Report Card for America’s Infrastructure, with a cumulative grade of C-. The new map tool pairs with statistics from the Infrastructure Report Card, as well as testimonials from elected officials discussing the importance of the law to their city or state’s community.
However, according to the U.S. Department of Transportation Inspector General, the Department also faces a “number of significant challenges” to implement the bipartisan infrastructure law, including inflation, labor and supply chain issues.
In a report to U.S. Transportation Secretary Pete Buttigieg, Inspector General Eric Soskin issued a warning that the Department needs to recruit, develop and retain the necessary workforce to implement and oversee infrastructure law programs.
Additionally, they will need to effectively coordinate with key stakeholders to overcome their immediate administrative challenges and mitigate risks they face amid broader economic challenges. Soskin added that the DOT will also need to enhance or establish effective and efficient processes for awarding and administering the billions of dollars in grants, as well as overseeing compliance.
According to the report, the National Infrastructure Advisory Council concluded in a 2021 report that the United States is “ill-equipped” to ensure a skilled workforce for its critical infrastructure. Soskin noted that the bipartisan infrastructure law could exacerbate these existing workforce challenges.
Current goals over the next year for the Department include improving some 65,000 miles of roads and 1,500 bridges; investing in over 600 airport infrastructure projects; invest in an estimated 15,000 new buses, ferries and subway cars; invest in 75 new, Made-in-America locomotives and at least 73 Made-in-America intercity trainsets; and build 500,000 EV charging stations in the next five years.
However, Soskin explained, in order to successfully implement these IIJA goals, the DOT will be required to acquire and maintain sufficient staff and contractors with the required knowledge, skills and abilities to achieve them. Otherwise, shortages of skilled workers could affect recipients’ abilities to deliver successful projects on time and on budget.
Continuing on, additional spending will put “significant pressure” on both the public and private sector to add these workers, among already rising prices. One related challenge is that funding recipients are reportedly receiving low numbers of bids for projects, increasing costs.
While the Department has implemented enhanced technical assistance to recipients to address these challenges, material shortages could also lead to problems such as change orders or project delays.
One potential solution he offered was to extend the November 2022 waiver for the domestic content sourcing requirements for construction materials due to ongoing rising costs and delivery delays. Soskin reported that the DOT has acknowledged these challenges and stated it is working with external stakeholders and other Federal agencies to help address workforce shortages and project cost increases.
While the Buy America requirement for construction materials did take effect on Nov. 10, requiring that projects under the bipartisan infrastructure law must use construction materials, such as iron, steel and manufactured products, manufactured in the United States, the Department has proposed two new partial waivers for certain projects.
The DOT was seeking comments on whether a waiver of Buy America requirements under the law should be granted in the public interest for de minimis costs, small grants and other minor components, as well as a narrow category of contracts and solicitations. The commenting period ended Nov. 20.
The DOT is proposing to waive Buy America preferences for iron and steel, manufactured products, and construction materials used in infrastructure projects funded under USDOT-administered financial assistance programs, under the following conditions:
The second notice involves waiving the Buy America preference awards obligated on or after Nov. 10, as well as projects solicited before May 14 and entered into contract before March 10, 2023.
Finally, Soskin explained that with the development of 15 new discretionary grant programs through the IIJA, the Department will need to establish clear application, review, and award selection processes, while responding to the changes in existing programs.
In October, the Biden-Harris Administration announced a new action plan to accelerate progress of infrastructure construction through the bipartisan infrastructure law. On Oct. 13, the White House hosted a summit for officials to discuss the new actions with an aim to improve coordination between state and local officials who directly account for 90% of the spending.
The action plan focuses on three main areas: delivering projects on time, staying on task and delivering projects on budget. Staying on task will also include equitable access and technical assistance, as well as workforce readiness and permitting.
The plan also builds on previous actions to speed up infrastructure project delivery, such as the Permitting Action Plan released in May and the Inflation Reduction Act signed back in August.
